Sole trader vs limited company: the honest guide for Brighton consultants

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If you are a freelancer or consultant in Brighton, one of the most important financial decisions you will make is whether to trade as a sole trader or set up a limited company. Get it right and you can save thousands of pounds a year.

The fundamental difference

As a sole trader, all your profits are subject to income tax and Class 4 National Insurance Contributions regardless of whether you draw the money out. Through a limited company, you can pay yourself a modest salary and draw the rest as dividends — taxed at lower rates and not subject to National Insurance.

The crossover point

There is no single profit level at which a limited company becomes better. If you take all the profit out as salary and dividends, the tax is now about the same as a sole trader pays. A company helps when you leave profit in it, pay employer pension contributions or want limited liability, and those benefits have to outweigh the extra complexity and cost.

When a sole trader structure works better

• Your annual profits are below £30,000
• You need to draw all your income immediately
• You value simplicity and minimal administration above all else
• You are testing a new business idea and don't want permanent structure yet

When a limited company makes clear sense

• Annual profits consistently exceed £35,000
• You can afford to leave some money in the company rather than drawing it all
• Your clients prefer to contract with a limited company
• You want to build a business you may eventually sell

Running costs to factor in

A limited company requires annual statutory accounts, a Corporation Tax return, a Confirmation Statement filing at Companies House, and a personal self-assessment return as a director. These accountancy costs typically run from £800–£1,500 per year. Factor this into your decision.